Networking Reference
In-Depth Information
For example, triadic closure means that two people with a common friend are likely
to be connected to each other as well [ 14 ]. One expects that triadic closure is
much more likely to apply to trust relations exhibiting embeddedness. However,
not all possible trust relations will exhibit this property, especially those formed by
arm's length relationships. In essence, trust relations in the context of embeddedness
relate closely to the “trustworthiness” dimension of relationships, while arm's length
relationships are based on specific external criteria and hence are closer to the
“competence” dimension.
A later study by Kollock and Braziel [ 33 ] points to importance of the social
relationships in an online setting. The authors examine the failure of many B2B
(business to business) ventures. They point out that these efforts were partially based
on the assumption that a market involving anonymous buyers and sellers will be
more successful than one that relies on social relationships. However, the failure of
these approaches shown that assumption does not hold in real life. One the reasons
is offered by McFadden: “Real-life markets are very rough, murky, tumultuous
places where commodity attributes shift, supply is uncertain, prices volatile, and
information imperfect” [ 43 ]. This further resonates with the observation that
markets do not incorporate all possible risk into prices. In these cases, trust based
on past interactions reduces the risk associated with a transaction. When future
interactions are unlikely to occur, then additional mechanisms are needed to enhance
the market prices. Examples of these are reputation methods that we will examine
in later sections.
To summarize, the social network that an individual is embedded in provides her
with special privileges both in economic and non-economic contexts. The trustor can
rely on a trustee for a number of different goals: achieving a task in a timely and cost-
effective manner, resolving conflicts easily, and obtaining information that will offer
a competitive advantage. The social structure provides the necessary enforcement
mechanisms that limit the trustee's ability to misbehave. These in turn reduce the
inherent risk and uncertainty involved in the transaction. Therefore, the trustor
depends on the social network for her actions. However, even in the case of repeated
transactions, relying solely on trusted entities is not always optimal. Trustees outside
the trustor's social network may have access to information or resources of strategic
value. Even though interactions with such trustees may involve higher levels of
uncertainty and risk, the may be worth the cost. Hence, when evaluating trust in
a transactional context, there are a multitude of different goals that can be important
to the trust decision. These goals are all part of the trust context and exactly describe
the dependence of the trustor on the trustee.
3.1.2
Trust in Economic Institutions
In the previous section, we considered trust relations within a social context where
the concepts of embeddedness and social capital play a large role. These trust
relations can be of an economic nature, business relationships between firms, or
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